Gifting money to your children now, rather than later
September 28, 2017
According to a recent CIBC poll, the majority of Canadian parents with a child 18 years or older (76%) say they’d give their kids a financial boost to help them move out, get married, or move in with a partner, with nearly half of them giving an average of about $24,000.
And, when given the option, almost two-thirds of parents would prefer to give cash rather than have their adult child and partner/spouse live with them. Yet, most Canadians (68%) either misunderstand or say they don’t know the tax and other financial implications of gifting.
“The poll findings show that while many parents are thinking about giving their kids a financial boost to leave the nest, there are a lot of misconceptions about gifting,” says Jamie Golombek, Managing Director, Tax and Estate Planning, CIBC Wealth Strategies Group.
In his new report, Give a Little Bit, he says, “Unlike in the U.S., we don’t have any kind of gift tax, which means if you have what’s called ‘never money’ – money you’ll never spend in your lifetime – it’s worth considering making a financial gift while you’re alive to help your kids get started in life.”
Key poll findings:
- 76% say they’d give financial support to help an adult child move out, marry or live with a partner, while 24% wouldn’t provide any financial support.
- Of parents providing financial support:
- 47% would give money in the form of a financial gift
- 28% would let their adult child and his/her partner live with them
- 25% would act as a guarantor on a mortgage
- 65% of parents would prefer to give a financial gift than have their adult child and spouse/partner live with them
- $24,125 is the national average gift size. Those with household incomes of more than $100,000 gift nearly double that amount ($40,558) with as many as 25% giving over $50,000.
- 68% of Canadians either misunderstand or don’t know what taxes exist on financial gifts
The poll finds that parents are split on whether or not to tie a financial gift to major or special milestones like buying a home, graduation, birth of grandchildren, or settling down with a spouse. Further, more than half (55%) of parents are concerned about gifting to their children, with two-in-five of them admitting they may need the money later and almost a third (29%) worrying that their son or daughter won’t use the money ‘wisely’.
As well, more than a third (37%) of all parents say they’re comfortable taking on debt to help their kids get a good start. However, few parents will actually tap into their credit lines or borrow from family and friends and most (80%) of those giving money will draw from cash and savings to fund their gifts.
“The caveat to making any financial gift is that you generally don’t want to put your own finances at risk,” says Golombek. “You need to map out the lifestyle you want in retirement and the money you’ll need before making a financial gift.”
Over the next decade, baby boomers are expected to inherit an estimated $750 billion, according to a CIBC Capital Markets report. Based on the findings from the CIBC Gifting Poll, likely a good chunk of the bequest boom will skip a generation as 74% of parents aged 55+ say they would pay forward their inheritance or a portion of it to their children or grandchildren if they received an inheritance today.
“When you gift during your lifetime, you’re able to enjoy seeing your beneficiaries use the money while at the same time reaping potential tax savings opportunities,” Golombek says. “In addition, by gifting assets before you die, these assets will not be subject to probate fees because they will not be part of your estate.”
He offers five tips for gifting:
- Talk to your financial advisor to determine how much ‘never money’ you may have.
- Gift cash in Canada with no tax implications (gifting appreciated property may trigger capital gains tax).
- Minimize taxes for the entire family by gifting property to family members in lower tax brackets.
- Use strategies to avoid probate tax of up to 1.7% (depending on the province/territory) of the estate’s value.
- Help kids buy a home or pay down debt with a secured mortgage.
|Written by Sheryl Smolkin|
|Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.|